Supernatural Agency: Online business tales

Do I really need to know when my close friends and not so close friends are ‘heading to an appointment’ or ‘eating a sub’? While, if I do, I can get them all to sign up for Twittter and we can share our non-earthshaking, mundane lives in excruciating detail by being constantly updated, wherever we are, on whatever device we’re connected to. Am I the only one who thinks this is an incredibly stupid concept?

Apparently, because they’ve raised an undisclosed (probably because the VCs might not want to explain the logic to their investors) amount of venture capital, estimated in the $1-5 million range. This, in spite of having no discernible business plan and no definable revenue model.

Now some of the investors in this are pretty smart cookies and this kind of money is chump change to them so I’m guessing it’s a bet- that maybe this thing expands beyond the Techcrunch crowd and the underpaid 20 somethings with too much time on their hands. Even if it does, the annoyance factor will become unbearable when they try to add advertising (ultimately the only practical monetization strategy I can see) to the messages:

“Heading out to my car -interrupt: Check out the new Scion, it rocks!- Dude, WTF was that?”

Ugh.

So I’d like to know what the dweebs who built this thing will do with their dough? Finally catch up on back pay? That doesn’t move the business forward. Buy nicer chairs and bigger monitors? I would but that doesn’t bring home the bacon either. Market it? I’m a marketing guy through and through and I can’t see the broad appeal beyond techies but I could be wrong…wait…brain is processing….ah…

The real deal: This is a domain play. Twitter is a one word, memorable domain whose value is skyrocketing because of a gimmick. Someone will buy it for its domain power and use it for something they can make money with.

It’s a brilliant monetization play from a domainer’s point of view even though I doubt anyone involved has thought it through that strategically. Should be interesting…

SupernaturalAgency develops media sites and web-based applications that help people take full advantage of those sites. These are not ‘mission critical’ sites or applications in that, their failure, accidental or otherwise, won’t bring down the wrath of our users. This is an intentional decision on our part, reinforced this week by the inexcusable breakdown of a major San Francisco data-center that hosted, among others, craigslist.org and SixApart’s Typepad blogging service. These services were out of business for hours which means that many of their users, who use them to run their businesses, were also temporarily out of business. It was a classic cascading effect that never should have happened.

Both of us worked for a company that provides a mission critical service to hundreds of thousands of small to mid-sized businesses. They use a co-location in a major data-center and have their own data-center with a significant investment in redundant power back-ups. This is a huge responsibility and one that can break a company should there be a failure.

As I’ve mentioned frequently in describing our company, we’re in this as a serious but fun experiment in making a successful business without a huge amount of stress. That’s why we’ve chosen a fairly lightweight, consumer focus and a problem whose solution will make people feel good about themselves. When we provide this solution there is a time element involved but a slippage of hours or even days won’t materially affect the desired outcome for either ourselves or the user. Two weeks might be a problem, but if our hosting partner is down for two weeks there is probably something much graver going on, something that eclipses the importance of anything we’re doing.

The Scalability Issue

Some of the potential investors we’ve spoken with, particularly those with tech backgrounds, have questioned our ability to scale with a host and also expressed concerns over our data assets being in ’someone else’s’ hands. Our response is this:

• This isn’t do or die stuff. If we don’t have five nines of up-time the sky won’t fall.
• We are in no way qualified to run even a small data-center. It’s simply not our core competency.
• The available large scale hosting vendors are proven and include names like Amazon S3 and Google Base. We are currently testing Media Temple.
• They have set up virtual servers that can scale extremely quickly. This is important because one major media story about our project could mean a huge spike in users virtually overnight. We don’t want to be that company that ran around all night borrowing servers because Techcrunch or Digg sent them link love.
• The database can easily be backed up locally- and will be.

We don’t even know anyone we could borrow a cup of server goodness from.

So, the next step in the seed capital exercise is something called ‘Use of Funds’, i.e. what are you planning on spending our money on? It’s a fair question and one we’ve thought about. We don’t need a lot of equipment and we are not building a data center so we are not hardware intensive. We have programing needs but the app is not rocket science- it does have to scale so we will need a good DB programmer and we should build in the ability to gather as much data as possible for future uses. So developer skills are an important expense but not a huge one. Let’s do a quick breakdown of where we might spend capital (assume one year of spending- goal is revenue positive in six months):

Founder’s salaries $140k

Developer Contract $50k

Editor/shopper contracts, 9 months $18k

Rent $6k     (it’s cheap here and we have a friend who offered us a deal)

Office Supplies $.5k

ISP $.6k

Hosting $3k

PR (6 months) $18k

Insurance   $1.2k

Professional Fees    $6k

PPC (assumes all revenues first six months are recycled into PPC)   $12k

Travel   $5K

Total:  $242,300.,  leaving us about 8k for unexpected stuff (like hosting spikes, a good thing) or more PPC.

I did not try to make these numbers fit the budget- I simply picked numbers that seem reasonable. We’ve already spent some money of our own and brought some assets to the table, principally domains and experience (and computers, software, furniture, etc.).

What the $250k gets us:

Freedom to pursue this 24/7 without having to do other stuff to pay the bills.

Much faster ramp to revenue

PR campaign at least up to pro standards (we will be going after consumer media so we need help)

Scalability

Strong business model for expansion

Like Dr. Frankenstein, I have emerged from the Excel lab with a monster. Once I laboriously built (could someone explain excel macros to me?) my statements, the urge to tinker with the scenarios was irresistible. What if I change the this ratio? What if we only get visitors at this rate? What if our average sale is $x?

So, of course I wanted to play with the worst case scenarios: slower start than planned, fewer visits, fewer conversions, etc. The results were surprisingly direct and not really subject to speculation. If we do not take seed capital and things go slower than we think, we still make money. If we do raise capital ($250k is our target) a few things happen. We can put the petal to the metal earlier on the marketing, primarily PPC and PR. SEO gets done by us regardless of budget. We can get the app built that drives our repeat business faster. However even if that takes us a litle longer, the target site(s) that the app aims repeat users to will still be there and they make money as standalone media sites. So either way we’re moving forward.

And oh yeah, I suspect raising money gets a lot easier when you’ve got some revenue flow.

And now a little rant about our local angel investor group, to remain nameless. To apply to present you must email your plan and PPT. Then their decision process to determine whether you present is three months. I’m not sure what dimension they live in but three months these days for seed money is an eternity. But that’s not seed money we’re talking about, its your first opportunity to present your idea. They state on their site that it will be another 3-6 months before you actually see a check. So why would we even try? These days you can build a web-based business in months without investing in costly infrastructure and see revenue very early.

This is a disadvantage of location. If we move to the West Coast things move faster. But, right now, we don’t want to move for a variety of reasons.

Those are the choices you face in the real start-up world.